Markets Plunge On War Jitters

By: Jerry Knight

Stocks and the dollar dove in tandem today as worries about the looming war with Iraq once again overwhelmed what little good news investors are finding in quarterly corporate earnings reports.

Quickly forgetting whatever it was that gave the market a little lift yesterday, investors started selling early and indiscriminately, sending the Dow Jones industrial average and the Standard & Poor's 500 stock index toward their sixth loss in the past seven days.

At 2:30 (EST) 29 of the 30 Dow stocks were down for the day and the blue chip index was off more than 200 points. Only a couple dozen of the S&P members were able to avoid the avalanche of selling that knocked more than 20 points off that index. The Nasdaq Stock Market composite index was falling even faster, off more than 40 points, a plunge approaching 3%.

With today's decline the Dow is down almost 700 points since the markets turned south on Jan. 14.

By no coincidence, that was the day on which the U.S. dollar began a slide that has now stretched into its worst losing streak against the Euro since that multi-national currency began trading four years ago. Only a few months ago the dollar and the Euro had nearly equal values, but today a tourist in Paris would pay $108 for a souvenir that costs 100 Euros.

The drops in the dollar and the stock market are reinforcing each other. The declining dollar prompts some foreign investors to pull their money out of the U.S. market, which pulls down stock prices. At the same time, the declining stock market motivates overseas investors to shift their holdings to other countries, putting further pressure on the dollar.

Behind both markets' declines is the threat of war with Iraq and the growing differences between President Bush and European leaders over what should be done to Saddam Hussein.

What happens to the financial markets in the next few days is likely to be determined by political rather than economic events. On Monday, U.N. weapons inspectors are scheduled to deliver their latest report, which could heat up the arguments about the war. On Tuesday President Bush delivers his State of the Union address, which could give investors fresh fodder on Iraq, taxes, and the economy.